Retailers Score at Supreme Court on Credit Card Fees

WASHINGTON (CN) – In a narrow holding that could still shake up banking practices around the country, the Supreme Court ruled Wednesday that retailers have a free-speech case concerning their right to impose credit card surcharges.

U.S. merchants face some of the highest swipe fees in the world – roughly 2 percent to 3 percent of the purchase cost, and sometimes higher – generating more than $50 billion a year in revenue for credit card companies.

While retailers traditionally make up these costs by charging more, a salon called Expressions Hair Design went to the Supreme Court to fight how New York regulates such pricing.

The Empire State has barred credit card surcharges, under threat of criminal penalty, since 1984. “No seller in any sales transaction may impose a surcharge on a holder who elects to use a credit card in lieu of payment by cash, check or similar means,” the law says.

There is nothing in the law, however, that says retailers cannot give discounts to consumers who pay with cash. At oral arguments this past January, an attorney for the Vestal-based salon told the high court that the distinction makes the law unconstitutionally vague.

Both schemes would have credit card users pay more, but credit card companies favor cash discounts over card surcharges because the latter has the effect of subconsciously dissuading customers from paying by card.

The Supreme Court was unanimous Wednesday that the retailers do have a speech issue, but it reserved judgment on whether New York’s law is unconstitutional.

When it last considered the case and ruled against the retailers, the Second Circuit never addressed whether New York’s law, General Business Law Sec. 518, survived First Amendment scrutiny. The federal appeals court must do so now, according to Wednesday’s decision.

There are few frills to the 11-page lead opinion by Chief Justice John Roberts, a result that did not go unnoticed by Justice Sonia Sotomayor.

“This quarter-loaf outcome is worse than none,” she wrote separately. “I would vacate the judgment below and remand with directions to certify the case to the New York Court of Appeals for a definitive interpretation of the statute that would permit the full resolution of petitioners’ claims. I thus concur only in the judgment.”

Joined by Justice Samuel Alito in her separate opinion, Sotomayor said the Second Circuit erred in not seeking input earlier from New York’s highest court, which confusingly is also called the Court of Appeals.

“Given the significant benefits certification offered and given the absence of persuasive downsides identified by the Second Circuit, the decision not to certify was an abuse of discretion,” Sotomayor wrote.

“The consequences of the decision not to certify reverberate throughout the court’s opinion today,” she added.

Sotomayor noted that the Second Circuit still could certify the issue to the Court of Appeals when it receives the case again, but that there is a way to ensure this more thorough outcome.

“Rather than contributing to the piecemeal resolution of this case, I would vacate the judgment below and remand with instructions to certify the case to the New York Court of Appeals to allow it to definitively interpret §518,” Sotomayor wrote.

Four of the court’s eight judges joined the Roberts opinion. Justice Stephen Breyer wrote yet another opinion concurring in the judgment, saying he agrees with Roberts but that he also agrees with Sotomayor “that on remand, it may well be helpful for the Second Circuit to ask the New York Court of Appeals to clarify the nature of the obligations the statute imposes.”

Expressions and the four other New York businesses that filed suit are represented by Deepak Gupta with Gupta Wessler. Opposing counsel included Richard Dearing with the City of New York Law Department and New York Solicitor General Barbara Underwood.